Taxes imposed by Virginia localities are mostly imposed on businesses rather than individuals. These taxes are one of the biggest impediments to businesses locating in Virginia or in a specific Virginia locality. There are quite a few reasons for this, but the State has not done businesses any favors by creating four separate appeal systems for local taxes. Of course, not every appeal system applies to every tax. However, knowing the different systems and what is required for each can be the difference between successfully challenging a tax that has been assessed and being prevented from appealing the assessment altogether. The main taxes imposed by Virginia localities are below. Contact Commonwealth Tax Law to obtain assistance in your tax matter.
The Business, Professional, and Occupational License tax or BPOL tax might be the most controversial tax imposed in Virginia. The tax itself goes back over two centuries. What makes the BPOL tax most controversial is how it is imposed. The BPOL tax is imposed on anyone doing business in the locality and is measured by their gross receipts, not income. The tax is not an income tax. Deductions are not permitted for common items like costs of goods sold or labor costs. So while the tax rates are small, the overall tax due can be very large because of the fact that deductions are limited. Even though there are no deductions for common items like costs of goods sold or labor costs, there are some deductions. Knowing what can be deducted is important.
Another controversial aspect of the BPOL tax is that it was being imposed differently among the local governments in Virginia. This led to a major change in the administration of the BPOL tax in the late 1990s. The State adopted a statute that created uniform provisions and required every locality to adopt these provisions into their local tax code. In addition to these provisions, the state allowed BPOL tax assessments to be appealed to the Virginia Department of Taxation in an attempt to create uniformity across all local governments imposing this tax. While these changes were made in the late 1990s, they are important now because they are all still in effect and will be for the foreseeable future. So understanding how and why we have arrived at the current place with the BPOL tax is quite necessary.
The BPOL tax gets even more complicated when multistate businesses are subject to the tax. These businesses are permitted to apportion their gross receipts as well as deduct those gross receipts that other states subject to their income or income-like tax. How to calculate the apportionment and deduction is a point of contention with many local governments. The Virginia Department of Taxation has issued formal guidance on how the calculations should be made when not covered by the statute. Unfortunately, local governments have disputed these methods which have been upheld in court. Having an understanding of how the apportionment and deduction should be calculated is vital for a multistate business operating in Virginia.
The real property tax is actually a very simple tax to calculate. It is calculated by multiplying the value of the real property by the tax rate. The value of the real property is determined as of tax day, which is usually January 1 or July 1. But the fact that it is the largest tax that local governments impose and its appeals can be difficult make the real property tax troubling to those that must pay the tax.
Real property tax appeals are difficult because local governments have different processes and timelines for filing an appeal. In some localities, real property tax challenges may be initiated in court for up to three years after the end of the tax year. In other localities, such challenges must begin administratively as soon as a matter of months after the local government has determined the value of the property. So if a tax needs to be challenged based on the belief that the property was improperly assessed, it is certainly possible that any sort of challenge is foreclosed if a deadline is missed. This is why it is important for a taxpayer to have the right legal counsel as soon as possible.
Another important aspect of challenging the real property tax is how to challenge it. In just about all cases, the only aspect that can be challenged is the value of the real property and how that value was determined. What is the fair market value of the property? Was it determined uniformly? Did the appraiser follow the Uniform Standards of Professional Appraisal Practice (USPAP)? Was the appraiser required to follow the USPAP standards? If an appeal can be considered, these are all questions that need to be answered.
The tangible personal property tax is mostly like the real property tax. It is calculated identically. The value of tangible personal property is determined as of tax day, which is usually January 1. However, this tax has many exemptions and reduced tax rates. It also does not use the same appeals system as the real property tax. Manufacturers are exempt from the tangible personal property tax and household goods are also typically exempt. Businesses who are not manufacturers must pay the tax on most of their tangible personal property and of course most automobile owners are subject to the tax.
The value of tangible personal property is typically determined by using a percentage of original cost. It is questionable if this method can determine fair market value, which is required by the Constitution of Virginia. So if the value as determined by the local government is too high, the use of this method could be the reason.
The machinery and tools tax is a tax solely imposed on manufacturers. The tax is a property tax and is only imposed on their manufacturing equipment. In other words, non-manufacturing equipment owned by a manufacturer is not subject to either the machinery and tools tax or the tangible personal property tax. This treatment has been confirmed by the Supreme Court of Virginia.
Similar to the tangible personal property tax, the values of the machinery and tools are typically determined by the local government based on a percentage of the original total capitalized cost. The percentages and schedules used by local governments can vary greatly. Using different methods to determine fair market value among Virginia local governments creates uneven taxation. Again, it is questionable if this method can determine fair market value, which is required by the Constitution of Virginia.
Virginia local governments impose a variety of taxes other than the ones mentioned above. Those taxes include merchants' capital tax, admissions tax, meals tax, severance taxes, cigarette tax, transient occupancy tax, and utility tax.
Taxes imposed by local governments in Virginia have many issues including and beyond the issues mentioned above. Obtaining legal counsel that is familiar with these issues is important for any business whether it is already operating in Virginia or considering an expansion into Virginia.
If you need counsel regarding a matter involving taxes imposed by a Virginia locality, please contact Commonwealth Tax Law.